Copyright © 2007 Pearson Education Canada9-1 Marketing: An Introduction Second Canadian Edition...

Copyright © 2007 Pearson Education Canada9-1

Marketing: An Introduction Second Canadian Edition

Armstrong, Kotler, Cunningham, Mitchell and Buchwitz

Chapter NineNew Product Development and Product Life Cycle Strategies


Looking Ahead

• Explain how companies find and develop new-product ideas.

• List and define the steps in the new-product development process.

• Describe the stages of the product life cycle.

• Describe how marketing strategies change during the product’s life cycle.


Why Develop New Products?

• Follow changing market demands.

• Remain competitive.

• Keep up to changing technology.

• Replace dying products.

• Refresh and evolve existing products.

• Diversify product offering to reduce risk.


Obtaining New Products• Acquire.

– Patents.– Licenses.– Companies.

• Develop.– New products.– Modifications to existing products.– Improvements to existing products.


Some Succeed – Most Fail

• Successful new products.– Offer a unique superior product.– Have a well-defined product concept.

• Products fail.– Market size may have been overestimated.– Poor quality or design.– Incorrect positioning, pricing or promotion.– Does not deliver superior value.


New-Product Failures• Only 10% of new products are still on

the market and profitable after 3 years.• Failure rate for industrial products is as

high as 30%.– Overestimation of market size.– Design problems.– Incorrectly positioned, priced or advertised.– Pushed despite poor marketing research findings.– Development costs.– Competition.


Disciplined Development Process

• Idea generation.• Idea screening.• Product concept.• Marketing strategy.• Business analysis.• Product development.• Test marketing.• Commercialization.


Initial Stages• Sources of new ideas.

– Employees, customers, suppliers, partners, competitors.

• Idea screening.– Narrow down to those worth more time and

money.

• Concept development.– Develop prototypes and test consumer

interest.


Idea Screening

• Process to spot good ideas and drop poor ones.

• Develop system to estimate: market size, product price, development time and costs, manufacturing costs and rate of return.

• Evaluate these findings against set of company criteria for new products.


Concept Development and Testing

• Product idea.– idea for a possible product that the

company can see itself offering.

• Product concept.– detailed version of the idea stated in

meaningful consumer terms.

• Product image.– the way consumers perceive an actual or

potential product.


Business Case Stages

• Marketing strategy.– Target market.– Product positioning.– Sales, market share and profit objectives.

• Business analysis.– Review of sales, costs and profit

projections.– Will product meet corporate objectives.


Marketing Strategy• Phase One.

– Target market, planned market positioning, sales, market share, profit goals.

• Phase Two.– Product’s planned price, distribution,

marketing budget.

• Phase Three.– Sales and profit goals, marketing mix

strategy.


Business Analysis

• Involves a review of the sales, costs and profit projections to assess fit with company objectives.

• If yes, move to the product development phase.


Product Development

• Develop concept into physical product.

• Calls for large jump in investment.

• Prototypes are made.

• Prototype must have correct physical features and convey psychological characteristics.


Commercialization Stage

• Test marketing.– Test product in selected markets.– Can include virtual testing.

• Launch product.– Full market distribution at once or in stages.– Often heavy and costly promotion.– Measure market acceptance.– Adjust to meet launch sales objectives.


Test Marketing

• Product and program introduced in more realistic market setting.

• Not needed for all products.

• Can be expensive and time consuming, but better than making major marketing mistake.


Commercialization

• Must decide on timing (i.e., when to introduce the product).

• Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally).

• Must develop a market rollout plan.


Organizing New-Product Development

• Sequential approach.– Each stage completed before moving to next

phase of the project.

• Simultaneous approach. – Cross-functional teams work through

overlapping steps to save time and increase effectiveness.


Product Life Cycle• Development -- No customers, no profits,

heavy spending.

• Introduction -- Early adopter customers, no profits, high launch costs.

• Growth – Early majority customers, rapid sales growth and revenues.

• Maturity – Late majority customers, flat sales, declining profits.

• Decline – Laggard customers, declining sales, replaced by new products.


Product Life Cycle Lengths• Product class has the longest life cycle

(e.g., gas-powered cars).• Product form tends to have the standard

PLC shape (e.g., dial telephone).• Brand PLCs can change quickly

because of changing competitive attacks and responses (e.g., Tide, Cheer).


Introduction Phase• Sales – low.• Costs – high cost per customer.• Profits – negative.• Marketing objectives -- create product

awareness and trial.• Product -- offer a basic product.• Price -- use cost-plus. formula• Distribution – build selection distribution.• Promotion -- heavy to entice product trial.


Growth Phase• Sales – rapidly rising.• Costs – average cost per customer.• Profits – rising.• Marketing objectives – maximize market share.• Product -- offer extension, service, warranty.• Price – penetration strategy. formula• Distribution – build intense distribution.• Promotion – reduce to take advantage of

demand.


Maturity Phase• Sales – peak.

• Costs – low cost per customer.

• Profits – high.

• Marketing objectives – maximize profits while defending market share.

• Product – diversify brand and models.

• Price – match or best competitors. formula

• Distribution – build more intensive distribution.

• Promotion – increase to encourage brand switching.


Maturity Stage Strategy

• Modifying the market.– Increase the consumption of the current

product.

• How?– Look for new users and market segments.– Reposition the brand to appeal to larger or

faster-growing segment.– Look for ways to increase usage among

present customers.


Maturity Stage Strategy

• Modifying the product.– Changing characteristics such as quality,

features or style to attract new users and to inspire more usage.

• How?– Improve durability, reliability, speed, taste.– Improve styling and attractiveness.– Add new features.– Expand usefulness, safety, convenience.


Maturity Stage Strategy• Modifying the marketing mix.

– Improving sales by changing one or more marketing mix elements.

• How?– Cut prices.– Launch a better ad campaign.– Move into larger market channels.– Offer new or improved services to buyers.


Decline Phase• Sales – declining.

• Costs – low cost per customer.

• Profits – declining.

• Marketing objectives – reduce expenditures and milk the brand.

• Product – phase out weak items.

• Price – cut price. formula

• Distribution – selective and phase out unprofitable outlets.

• Promotion – reduce to minimum level.


Style, Fashion and Fads

• Style is a basic and distinctive mode of expression (e.g., formal clothing, Danish modern furniture).

• Fashion is a popular style in a given field (e.g., business casual).

• Fad is a fashion that enters quickly, is adopted quickly and declines fast (e.g., pet rocks).


Looking Back• Explain how companies find and

develop new-product ideas.

• List and define the steps in the new-product development process.

• Describe the stages of the product life cycle.

• Explain how marketing strategies change during the product’s life cycle.

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